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Labour broking making the client the sole employer after the expiry of the three months

In the recent decision by the Labour Appeal Court of NUMSA v Assign Services and Others (JA96/15) [2017] ZALAC 44 (10 July 2017) the LAC interpreted section 198(3)(b)(i) of the Labour Relations Act 66 of 1995 (“LRA”) which provides that in the event that a temporary employment service (labour broker) employee is placed at one of its clients on a temporary basis, for a period exceeding 3 months and earns less than the annual amount under the Basic Conditions of Employment income threshold; the employee is then “deemed to be the employee of that client and the client is deemed to be the employer”.

Under the amendments to the LRA, a temporary employment service is defined as work for a client by an employee for a period not exceeding three months as either a substitute for an employee of the client who is temporarily absent or in a category of work and for any period of time which is determined to be a temporary service by a collective agreement concluded in a bargaining council, a sectoral determination or a notice published by the Minister.

Before the Labour Court, the trade union, NUMSA, argued that the employees had come to be exclusively employed by the client, Krost Shelving and Racking (Pty) Ltd. The labour broker, Assign Services, argued that the employees in question remained its employees but for the purposes of the LRA, that there was a dual employment relationship.

The Labour Court found that under section 198(2) of the LRA, the labour broker was the employer of the employees in question for the purposes of the LRA. However, this did not invalidate the existing contract of employment between the labour broker and the employees. Instead, there was a dual set of rights and obligations that operated in parallel.

On appeal before the Labour Appeal Court (“LAC”), the court interrogated the sole employer interpretation and found it to be in keeping with the explanatory memorandum accompanying the LRA Amendment Bill, which was tabled in 2012. The LAC rejected the dual/parallel employer interpretation. This protection is a measure to ensure that the placed employees are not treated differently from the employees employed directly by the client. The intention being that the deemed employees are fully integrated into the enterprise as employees of the client.

Based on the LAC judgment, at the expiry of the three months, the employment relationship between a client and the placed employee is created by a statutory deeming clause, by way of the amendments. Consequently, the placed workers become employed by the client for an indefinite period and on the same terms and conditions to the employees of the client performing the same or similar work. The labour broker remains the employer until the expiry of the three months.

According to the LAC, at paragraph 42:

“The sole employer interpretation does not, in my view, ban the TESs. It however, regulates the TESs by restricting the TESs to genuine temporary employment arrangements in line with the purpose of the amendments to the LRA. The TES remains the employer of the placed employee until the employee is deemed the employee of the client. The TES will be responsible for its statutory obligations regarding the placed workers for as long as the deeming provision has not kicked in. This interpretation reconciles the perceived conflict between s198(2) and 198A(3)(b) referred to in s198(4A) of the LRA.”

We have learnt that the Confederation of Associations in the Private Employment Sector (“CAPES”), who was admitted to the matter as an amicus curiae, intends to bring an appeal of this judgment. CAPES holds the view that this interpretation of section 198A of the LRA would create disharmony between the interpretation of the LRA and the Basic Conditions of Employment Act 75 of 1997. According to Capes, this was not addressed by the LAC in its judgment. Capes relies on a number of other grounds that have not yet been disclosed.

Until an application is brought, employers using labour brokers have to be mindful of the impact of the deeming provisions, both in becoming the statutory employer after the expiry of the three months, and the costs of equalising employment between the placed employees and its own employees. Notwithstanding the LAC’s finding, this interpretation appears to be restrictive on labour brokers.

Once an application is brought by CAPES, it has the effect of staying the LAC judgment and reinstate the LC judgment until the matter is determined.

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